Ya gotta give Renee’s and the als’ attorneys credit. They keep on going, like the advertising bunny.

I’ve blogged the Ventos’ tale, from Mom and Pop being accredited Virgins (Islanders) after 3 Cir said so, through the daughters’ abortive confab with the competent authority and their final expulsion from the VI, and I’ll leave it to my readers to go back. “My catalog is long. Through every passion ranging,” as a much finer versifier than I put it.

The Vento daughters had paid directly to VIBIR, claiming to be VI residents (which they later stiped they weren’t). Also, IRS took payments made by the Vento daughters to IRS, and “covered into,” that is, paid same to VIBIR per Section 7654. Finally, it was time for the Rule 155 beancount.

Except.

The Vento daughters claimed that the amounts paid and covered into VIBIR are State and local taxes (SALT, in contemporary jargon), and that issue was tried by consent, so that Rule 41 lets them amend their petition.

“In their briefs they had contended that both categories of payments addressed in the Court’s Opinion–the payments petitioners made to VIBIR directly and the payments ‘covered into’ VIBIR by the IRS–were payments of Virgin Islands tax eligible for credit under section 901. In their computations for entry of decision they contended that both categories of payments constituted State or local taxes deductible under section 164. In their motion for leave they contended that payments in the first category were deductible under section 164 and that payments in the second category should be credited dollar-for-dollar against their Federal income tax liabilities under section 31(a) (credit for tax withheld from wages) or otherwise. Petitioners had not advanced this latter contention, which they urged ‘[a]s a protective measure,’ at any prior point in this litigation.” 152 T. C. 1, at p. 8.

As for their direct payments to VIBIR, the three-year lookback for overpayment refunds is long gone. As for the “covered into” money, there is a jurisdictional question.

“First, petitioners contended the amounts paid to VIBIR…, which our Opinion held did not constitute ‘taxes paid’ for purposes of section 901, nevertheless constituted State or local income taxes deductible under section 164(a)(3). We based our conclusion that these amounts were not ‘taxes paid’ in part on the fact that petitioners had no legal obligation to pay Virgin Islands income tax…. In asserting that they should be allowed deductions for these payments as State or local taxes, petitioners were necessarily asserting that section 164(a)(3) allows deductions for payments that a taxpayer has no legal obligation to make. That is unquestionably a ‘new issue’: Petitioners had not advanced this contention at any prior point in this litigation, and none of the parties addressed it, in any fashion, before the date on which petitioners filed their Rule 155 computations.

“Second, petitioners contended that the payments the IRS had ‘covered into’ VIBIR should be credited dollar-for-dollar against their Federal income tax liabilities. This position contradicted the position petitioners had taken throughout this litigation, viz., that the amounts ‘covered into’ VIBIR constituted payments of Virgin Islands income tax eligible for foreign tax credits.

“Petitioners’ new position would require the Court to address at least two subsidiary legal questions, neither of which the parties addressed or even mentioned in their briefs. The first would concern our jurisdiction to determine overpayments on the basis of the withholding and other credits petitioners now seek. The second question would be whether the payments ‘covered into’ VIBIR, once removed from petitioners’ …accounts, remained available to offset their… U.S. income tax liabilities. In urging that petitioners’ motion for leave to amend petition was futile, respondent contended that the answer to this second question is ‘no.’ In so contending, respondent took a position resembling that which petitioners themselves had taken previously, i.e., that the payments, once ‘covered into’ VIBIR, became payments of Virgin Islands income tax.” 152 T. C. 1, at pp. 15-16. (Citations omitted).

But the Ventos aren’t finished yet. They want to introduce evidence as to “secret agreements” between IRS and VIBIR. But they originally moved under Rule 122, claiming they needed no evidence beyond what was already in the papers.

“We will accordingly deny petitioners’ motion to reopen the record and enter decisions consistent with the computations respondent has submitted. Petitioners were free, when submitting these cases for decision under Rule 122, to urge alternative positions and alternative legal theories. They did not do so. This may have reflected oversight on their part, or it may have been a strategic choice prompted by fear of undercutting their primary position. For whatever reason, they submitted only the FTC [Foreign Tax Credit] issue for decision, representing that all other issues in the case had been resolved. The FTC issue was thus the only issue that the parties addressed and that we decided. Petitioners cannot get a do-over by raising new issues in their Rule 155 computations.” 152 T. C. 1, at p. 18.

Judges Thornton and Halpern joust over whether the Rule 155 prohibition on raising anything but arithmetic is an absolute bar, or whether “interests of justice” might create an exception. But they agree on result. The Ventos are out.

An author, teacher, advocate and trusted advisor, Lew Taishoff is a New York City-based attorney with 52 years of experience in corporate and individual tax and real estate matters. He is an Enrolled Agent, examined and admitted to practice before the Internal Revenue Service, and admitted to practice before the ... Continue reading →